IP Law Daily Infringement verdict affirmed, damages award vacated in case between Texas oil equipment producers
Friday, March 17, 2017

Infringement verdict affirmed, damages award vacated in case between Texas oil equipment producers

In a trademark infringement dispute between two Texas oil equipment manufacturing companies using the name "Streamline," a jury’s infringement verdict was supported by sufficient evidence at trial, according to the U.S. Court of Appeals in New Orleans. However, the jury’s damages award was not supported by the evidence and the district court erred by not granting the defendant’s post-trial motion for judgment as a matter of law (Streamline Production Systems, Inc. v. Streamline Manufacturing, Inc., March 16, 2017, King, C.).

Streamline Production Systems, Inc. (SPSI) was established in 1993 by Michael Renick in Beaumont, Texas, as an oilfield services company. In 1997, SPSI began custom fabricating pressure vessels. It currently produces a range of custom fabricated natural gas processing equipment, such as gas separators, heat exchangers, re-boilers, and pressure vessels, and sells that equipment to customers nationwide, in addition to continuing to provide oilfield repair services. SPSI’s 2013 sales exceeded $27 million.

Streamline Manufacturing, Inc. (SMI) was founded in 2009 in Houston by Luis Morales and Bob Tulio. SMI also fabricates natural gas processing equipment, including pressure vessels, boilers, heat exchangers, skids, and separators, and sells them to customers nationwide. Between 2009 and 2014, SMI had over $20 million in total sales. SMI selected streamlinetx.com, as SMI’s website domain name.

Around 2011, SPSI became aware of SMI’s existence when it attempted to update its website and learned that the registration had lapsed and the name was purchased by SMI. SMI also found out about SPSI. SMI obtained a federal trademark registration for the mark "Streamline Production Systems" in October 2013. The following month, it filed suit against SMI for trademark infringement under federal and Texas law. SMI stipulated to a preliminary injunction in August 2014. SMI discontinued all use of "Streamline Manufacturing," discontinued its use of the domain name "streamlinetx.com," and eventually changed its name to Strongfab Solutions, Inc.

SPSI’s suit proceeded to a five-day jury trial in November 2015. The jury found that SPSI had proved by a preponderance of the evidence that SPSI had a valid trademark under the Lanham Act and Texas common law in "Streamline Production Systems," and that SMI had infringed this trademark. The jury further found that SMI had earned "zero" profit through its infringing use of the trademarks, but nevertheless awarded SPSI $230,000 as a "reasonable royalty" for SMI’s use of the trademark, another $230,000 for unjust enrichment under Texas common law, and a final $230,000 as exemplary damages, for a total damages award of $690,000. The district court subsequently denied SMI’s motions for a judgment as a matter of law (JMOL) and a new trial. SMI appealed.

Trademark infringement. SMI first argued that no reasonable juror could have found that "Streamline Production Systems" was a legally protectable trademark. The jury found that the mark STREAMLINE PRODUCTION SYSTEMS was suggestive and protectable without a showing of secondary meaning. The Fifth Circuit previously has expressed its preference for having a jury decide the factual issue of the categorization of a mark. In this case, there was sufficient evidence at trial to support the jury’s finding, including SPSI’s federal registration.

The appeals court also agreed that there was sufficient evidence in the record to support the jury’s finding of likelihood of confusion between the parties’ marks. The district court did not err in denying either the renewed motion for JMOL or, alternatively, a new trial. Of the eight digits of confusion, most favored SPSI and only two clearly favored SMI: (1) the sophistication of purchasers—both parties’ customers were large companies purchasing very expensive, custom made equipment—and (2) SMI’s intent in adopting its name—SMI did not learn of SPSI’s existence until 2011, and even then it did not know any details about SPSI’s business, its location, its customers, or its degree of success.

Damages. SMI appealed the district court’s denial of JMOL or a new trial as to the damages award. The jury awarded $230,000 each for lost royalties, unjust enrichment, and exemplary damages. The jury found that SMI’s infringement was "a proximate cause of damages" to SPSI. However, the jury declined to award damages to SPSI in the form of SMI’s profits, finding that the total profit SMI had earned through its infringing use was "zero." SPSI obtained injunctive relief prior to trial, when SMI agreed to change its name, discontinue all use of "Streamline Manufacturing" on its marketing and communications materials, and discontinue its use of the domain name "streamlinetx.com."

As for the royalty award, there was no evidence that SPSI and SMI ever entered into or even contemplated a licensing agreement. Nor was there any evidence that SPSI or SMI ever engaged in such licensing negotiations with any other entity. The jury’s royalty award was based solely on testimony by SPSI’s expert witness on a "hypothetical negotiation" between the two parties. The jury ultimately adopted a royalty rate equivalent to about 1.5 percent. A royalty-based damages award must be rationally related to the scope of the defendant’s infringement, the court noted. In this case, the royalty award was not supported by sufficient evidence because it did not bear a rational relationship to SMI’s infringing use, according to the court. "Here, the only testimony the jury had on which to base its royalty award was SPSI’s expert’s testimony. But the expert did not discuss the portion of SMI’s profits that were attributable to its infringing use, let alone suggest that all of SMI’s profits were attributable to its infringement," the court said.

As to recovery for unjust enrichment, the jury was instructed that SPSI had to prove that SMI "used the goodwill and reputation of [SPSI] to sell its own goods or services." The evidence at trial did not support this finding. Where defendants have no knowledge of a mark, it can hardly be said that their infringement was willful. While SMI did eventually learn of SPSI’s existence, there was no evidence that SMI had modified its goods or conduct, after learning of SPSI, in an attempt to trade off SPSI’s good will or pass off its products as those of SPSI, the court said.

Because neither the royalty award nor the unjust enrichment damages were supported by the evidence, they were vacated. The exemplary damages award also was vacated, because, under Texas law, "exemplary damages may be awarded only if damages other than nominal damages are awarded." Given the absence of actual damages, and SMI’s lack of intent to confuse, the Fifth Circuit concluded that injunctive relief satisfied the equities of this case. The court accordingly affirmed the jury’s finding of trademark infringement and vacated the damages awards.

The case is No. 16-20046.

Attorneys: Terry Blaine Joseph (Matthews, Lawson, McCutcheon & Joseph, PLLC) for Streamline Production Systems, Inc. Steven Jon Knight (Chamberlain, Hrdlicka, White, Williams & Aughtry) for Streamline Manufacturing, Inc.

Companies: Streamline Production Systems, Inc.; Streamline Manufacturing, Inc.

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